Enron, Bush, and the Calif. Energy Crisis

Oh, boy. Look what we have here:

Papers Show That Enron Manipulated Calif. Crisis

Yep. Using a variety of techniques described in two recently released memos, everyone’s favorite shell-gamer Enron reputedly implicated themselves in December of 2000, in the twilight of the Clinton Administration. The caretaker board which moved in to oversee Enron’s bankruptcy proceedings recently discovered and released the documents.

Now, this is all very curious, especially since Vice President Cheney reportedly formulated his National Energy Policy with help from Enron executives. The White House is still attempting to avoid full disclosure.

Alleged criminal behavior on the part of Enron reflects poorly upon the Bush Administration because they were so undeniably close. (Do I really need to supply citations for that statement?) But I think most reasonable people would agree that criminal behavior on behalf of one party does not necessarily imply the same on behalf of the other.

Here’s the facts as I see them:

  • Former Enron CEO Kenneth Lay and the Bush family are friends, and Lay acted as an advisor during the transition.

  • Enron executives secretly met with Cheney and his panel six times while the VP was creating the National Energy Policy.

  • At roughly the same time, Enron was apparently manufacturing and sustaining an energy crisis in California.

  • The White House first refused and then only very reluctantly consented to release any details about its dealings with Enron.

  • But, as far as I know, there is NO evidence to suggest that the White House assisted Enron in their alleged criminal activity.

The question I’d like to ask is this: looking at the evidence we have, much of it admittedly circumstantial, should the Bush Administration be investigated for possible complicity in Enron’s wrongdoing? Or is it unreasonable to ask for an investigation at this point?

After trying to isolate my personal politics as much as possible, I don’t think there is enough evidence to prompt a criminal investigation of the Bush Administration. But I do think that more and better disclosure on the part of that administration had better start flowing. I’d like to know what you folks think.

Well, you should remember Ari Fleischer’s statement in regard to the Enron scandal:

I think the key word there is “endless”. What needs to happen is a focused investigation that stops if nothing criminal is found. What Americans don’t need is millions of dollars spent on one investigation in which nothing is found, leading to another, in which nothing is found, etc… until we find that Bush once got a blow job.

It was stupid when it happened to Clinton and it would be stupid now.

Personally, I believe this administration could have something to hide, thanks to Cheney’s refusal to disclose any information without a court order. If you are not guilty of something, why spend so much time acting like you are? And why lie, as Cheney did when he said that the policy was based upon meetings with energy people and environmentalists. Later, of course, it was determined that there were no meetings with any environmentalists, only energy company executives. Sorry but I am finding it hard to consider him credible. I absolutely think an investigation is becoming necessary. If they didn’t do anything wrong, the investigation will show that. Case closed and we move on.

But how long should it be before that decision is made? Should an investigation be set forth with a specific shelf-life? And if that’s the case, what’s to stop Cheney & Co. from stonewalling for that length of time? I agree that there should be no independant counsel appointed with the power to investigate anything and everything for as long as he/she wants a la Ken Starr, but to give a deadline would only serve to protect the guilty. Besides that, I doubt that someone appointed by the current Justice Department would put as much effort into the investigation as the people of California would deem necessary.

I think there are very good questions that are raised about quid pro quos going on between the Bush Administration and the energy industry, but I am very pessimistic about governmental investigations getting anything substantial out of it.

Said Semp:

That brings up an interesting question. Since there will be no more independent counsels, who would do the investigating? Another Warren Commission?

I guess what really bothers me is you have the Bush Administration stonewalling for some indeterminate reason. That leaves open an entire spectrum of possibilities, from the stated position that disclosure would hamper the function of government to an attempt to manufacture a recession for purposes of consolidating power and orchestrating a dramatic “recovery” in time for the next elections.

Anyone’s guess is as good as the next until they open up. I suppose another way to phrase the OP is to ask, “do these latest developments give us the right to compel the Executive Branch to release their information, that we may determine for ourselves why they are stonewalling?”

After seeing how the Clinton investigation went I would stonewall any request too. Real investigations are far different than political witch hunts. Both sides are totally guilty of the practice. This is the end result of small spoiled minds running the govt. hopefully, in time, the truth will come out. Association doesn’t have as much to do with it as criminal nature. There are several Enron employees from Kenneth Lay on down who definitely committed criminal acts. That is where the investigation needs tobe centered. Any side trails off of the primary investigation will need to be persued on their own merits.

I’m not suggesting a time limit. Just focus. Staying on topic while conducting a complete investigation of this area. No “whitewater to travelgate to Vincent Foster to Monica” tactics.

Another thing that comes to mind is Bush’s complete refusal to help California in any way during the crisis. one could argue that he was (A) pissed that he did poorly in California during the election, or (B) was acting in the interests of Enron. B makes more sense than A to me.

musicguy, I suspect both A and B are true. Nice quote from White House Spokesweasel Fleischer, btw - just what is he accusing his fellow Republicans of, anyway? And how’s he coming with his promise to provide evidence of the departing Clinton aides trashing the place, anyway?

As for who should do the investigation, the Senate Commerce Committee seems well-suited to the task. Army Secretary Tom White, recently an Enron honcho, might be able to provide some guidance. The GOP-led House version certainly won’t touch it, not during an election year in which they’re at risk of losing what’s left of their control. Let’s see what the subpoenas dredge up before talking about criminality, which seems like a huge stretch at this point.

I guess the scenerio is that Enron directed Cheney to discourage FERC from doing their job and curbing price gouging in the California electricity markets. Evil.

As much as I would like to see Cheney et al burnt on the proverbial stake, I seriously doubt whether the above could be proved. I also doubt whether any explicit bribes were paid (as opposed to campaign contributions).

Enron may have discussed the CA electricity situation with Cheney, which may be the black eye that he is trying to avoid.

But I don’t find it likely that a legitimate legal case could be made against the administration. But perhaps I lack sufficient imagination.

OTOH, the Senate Investigation Committee could appopriately investigate this matter to see whether Enron may have exerted undue (but probably not provably illegal) influence. This would be simple and familiar legislative oversight.

Appropos nothing, there was an article on this in the NYT as well. Note that price manipulation and sham transactions may have been conducted by other energy companies as well.

“…the Enron memos, written by an outside lawyer for the company’s energy trading group, called the company’s price manipulation “the oldest trick in the book” and said that “other market participants” had followed Enron’s lead to inflate prices. And an official of the agency that operates California’s power grid said the strategies described in Enron’s memos matched suspicious behavior by many participants in the market that the agency has documented and submitted to federal regulators.”

Meanwhile, Grey Davis is hoping to recoup his $40 billion somehow.

Market Fundamentalism.

Official reaction was clearly driven by naive Market Fundamentalism (all too often seen here also among the lib crowd) of the sort that thinks if the bloody infrastructure has the name market it really must work. When I get a chance I’ll post some cites to econometric studies from the past 2 years indicating market power was a clear problem. Of course, this clarifies the econometric data by indicating that some part of that market power was exercised at least in part illegally.

Thanks for this well-stocked and well-timed OP, Sofa. Here is another interesting Times story with lots of details on how the manipulation worked.

Yeah, I read this morning’s NY Times about it. I didn’t know whether to laugh or cry or say I told you so.

All along it was see no evil from the Bush administration over California’s energy gouging. Price caps? Who needs Price Caps? was the refrain from the Cheney Administration. Let us do the work, said the Kenneth E. Lay memorial FERC commission.

Yeah right, the administration did nothing. They were on the take to do nothing – and weren’t unhappy to screw California besides. The administration could hardly stink further, what with the energy policy being ghost written by the energy corporations, the stonewalling of Cali’s concerns, and the rank stench of the ranking Army Secretary. If this doesn’t merit an investigation, nothing does.

It should be noted that Enron’s alleged actions do not rise to the level of illegality. We may not like what they did, but it appears that they simply understood how to game the system that California established.

As to FERC dragging its feet, its not clear to me what their role should be – keep in mind that the system in place was essentially a creation of the California legislature, i.e., operating under California law. While FERC does have an overarching authority to ensure that wholesale rates are “just and reasonable”, the people crying for FERC intervention are those who were silently taking advantage of the initially lower rates produced by the operation of the markets, but are now looking for extra-market intervention once the players figured out how to legally exploit the market.

Ooh. keno has a really good point there. My OP was based on the assumption that what Enron was pulling was illegal. Not all forms of market manipulation are illegal.

If it wasn’t, that adds a whole new wrinkle to things.

I would submit that if the allegations are true; then at least part of what Enron did is illegal. I believe that the practice of deliberately moving energy out of California to avoid price caps and then re-sell to California is illegal. Furthermore, this article states that the California ISO has already levied penalties on power companies (including Enron) for violation of its rules. The problem arises from the fact that the maximum penalties allowed to the ISO is insignificant compared to the profits which resulted from breaking the rules.

False on its face, several allegations involve actual fraud -e.g. providing spinning capacity for the system which is required to be certified actual physical capacity, a necessary item to prevent system collapse I am led to understand. Enron traders appear to have fraudulently claimed on at least one occasion to have actual spinning cap when they did not. I can’t recall the congestion rules, but that may also be a legal problem

So if something’s not illegal, it’s morally acceptable?

Just checking, keno.

While I’m sure that many of the things that Enron and the other power brokers (pun intended) did were legal by California’s laws at the time of the “crisis,” I think it raises questions about how they got to be legal in the first place. Which opens up that nasty campaign finance can of worms. How much did Enron et al spend to get the laws passed that allowed them to do what they did, and on the other side what voice did the consumers get when the laws were being voted on?

And this leads to the question of where the current administration falls on the debate of corporate interest versus “public” interest. I’ll admit from the begining that I have already made up my mind where our current government falls in that regard, so you may take my arguments with that caveat. But if other states get the Enron/Bush shaft like California, what will the state of the union be? The philosophy of “what’s good for General Motors is good for America” is starting to sound like flat Earth theory.

Yes, keno has a very good point, and maybe it should be taken a bit further. Semp touches on it a bit above when he mentions that many of the things that the power brokers did were legal under the existing laws at the time.

My greatest heartburn in regards the ‘energy crisis’ stems from California’s legislature and Public Utility Commission’s refusal to accept any of the culpability for the whole debacle. Many of the mechanisms for artificially raising energy prices were put into place by way of the ‘flawed’ de-regulation model. As an example: the Utilities were forced to sell their generating assets and purchase power on the open market. As such, the utilities did not have any control over the price that it paid for energy. In an ironic turn of events, Kenneth Lay states in a Frontline interview, “That doesn’t pass the smell test.”

To further excacerbate the problem, numerous price caps (ending at $250/MWH) were foisted, not on the producers/providers, but on the California utilities. As a provider, Enron (or any others) had the option to sell to say, SCE, @ $250MWH or outside the state (or, because of legal technicalities, to SDG&E) at two, three, or four times the price. Totally legal, undoubtedly the smartest business decision, and possible only because of California’s de-reg model.

I don’t recall that it was ever proven that there was not sufficient energy available (i.e. no power, at any price). Certainly there was much mention made in various sources that the West was facing a real and imminent power shortage, but i don’t think history supports the assertations. Notice that in the summer of 2001 (after estimates were published that California would be 4500 - 5000 megawatts short of power) there were no wholesale rolling blackouts experienced. Note too that when the FERC price cap went into effect in June of 2001 the cost of power plummeted. Unfortunately, as the price cap only applied to ‘spot’ prices, those utilities that secured contracts prior to the FERC order were stuck with their contract prices regardless as to whether the prices were in excess of the cap.

Of course, the entire issue is not so simple as to allow for general blanket statements, but before delving into what may or may not have been done illegally, one should look at the legal implications of the California de-reg model. Keep in mind that whatever the intent of the de-reg legislation, Enron and other providers hired armies of legal soldiers to find and exploit the loopholes in the laws.

::sigh:: The initial decision not to impose price caps was made by the FERC under the Clinton Administration.

In any event, the appropriate response to an illegal distortion of the market is another distortion of the market (a market, BTW, already distorted by the botched “deregulation” of the California energy market - who the hell thought that capping retail prices while letting wholesale prices run free was a good idea?)

Perhaps the best way to deal with illegal manipulation of the markets would be to prosecute the criminals? And a failure to investigate would lie with the DOJ, FTC and California’s law enforcement.



Sua, no offense, but I haven’t the foggiest what you’re trying to say here.

False choice. The best we to deal with this kind of abuse is both prosecute the abusers, and secure the system from further abuse. It’s wonderful to try to catch bank robbers, but I’d sure as shit appreciate someone closing the vault!!